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Appraising PPP Projects

4Introduction

PPP projects demand a very sound preparation if they are to deliver timely, effective, and cost-efficient infrastructure. A significant part of this preparation is done in the Appraisal Phase. Appraising a PPP project means conducting a series of feasibility exercises that inform a decision to approve, cancel, or revisit the project before the structuring of the contract consumes scarce public resources.

This chapter presents good practices related to this important stage of the general PPP process cycle, and it highlights the extent to which an appropriate execution of the Appraising Stage can contribute to the delivery of Value for Money for taxpayers and users. See box 4.1.

BOX 4.1: Learning Objectives

The reader of this chapter will be able to:

  • Understand the main activities required to detail the scope of the PPP project, design its technical requirements, and assess technical risks (section 4);
  • Identify the main issues involved in estimating the costs of the private partner and adjusting them for risk, whenever appropriate (section 4);
  • Understand the basic elements required to design a preliminary contract structure, especially in terms of revenue model, payment mechanism, and risk allocation (section 5);
  • Comprehend the general tasks related to designing a financial model, from the government’s perspective, including identifying inputs, understanding the outputs, and doing sensitivity analysis (section 6);
  • Understand the basic techniques and good practices required to produce a series of feasibility assessments of the technical, commercial, economic, environmental, social, legal, and fiscal dimensions of the project — as well as to comprehend the main issues associated with the decision to procure the PPP project (sections 7 to 15);
  • Comprehend the basic structure of alternative procurement routes and how they relate to the outcomes of the tender process (appendix A).

Appraising a project is a very complex task. Its effective contribution to the project success depends on an experienced team with the required multidisciplinary expertise. As presented in chapter 3.13, a project team should be fully engaged right from the start of the Appraisal Phase. Not all of the team will be engaged full time during the entire appraisal exercise, nor is it expected that all the resources will come from within the government. Regardless of the configuration, a project team should be in place and working in order to achieve a satisfactory conclusion to the project appraisal, covering the following four areas of expertise.

  • Technical;
  • Environmental;
  • Economic/financial; and
  • Legal.

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